You’ve might not have heard of this before. The stock markets are a zero sum game, no matter how much you’d like to deny this fact. Here’s the definition of a zero-sum game from Wikipedia.
In economic theory (this mainly applies to stocks), a zero-sum game is a mathematical representation of a situation in which a participant’s gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.
In other words, for every winner, there’s a lose. For every dollar made from speculating with stocks, someone else lost a dollar. It’s simple. But simply realizing that the stock markets are a zero sum game is useless. We need to take a look at the implications.
All stocks will eventually go to zero, given enough time.
Nothing stands forever, as the saying goes. No company (stock) will last forever. The big names of today, whether it be Wal-Mart, Google, Home Depot. All will one day be nothing but a memory in history books. Don’t believe me? Let’s take a look at the Dow Jones Industrial Average. The Dow Jones average was founded on May 26, 1896. Back then, there were only 12 stocks in the index (not 30 like there are now). Here’s what happened to them.
American Cotton Oil – no longer around
American Sugar – no longer around
American Tobacco – no longer around
Chicago Gas – no longer around